expected slowdown in U.S. residential solar market in 2025, followed by a large-scale expansion by 2050.
The One Big Beautiful Bill Act (OBBBA) has brought significant changes to the U.S. residential solar market, affecting its growth trajectory in the coming years. The Act, which phases out the Section 25D Investment Tax Credit (ITC) for customer-owned solar systems after 2025, is expected to reduce residential solar capacity growth by up to 46% through 2030 [1][2][3].
The elimination of the residential ITC will make rooftop solar less affordable, leading to a market slowdown in the short term [1][2][4]. However, despite this near-term disruption, the long-term outlook remains positive, with potential for the market to reach nearly 1,500 GW of residential solar capacity by 2050, representing tens of millions of new solar installations [1][2][4].
Third-party owned (TPO) systems can continue to qualify for ITC under Section 48 and bonus adders, but these projects now face foreign entity of concern (FEOC) restrictions and tighter placed-in-service deadlines, creating uncertainties and operational challenges [2][3]. The accelerated deadline to begin construction by July 4, 2026, or have systems placed in service by December 31, 2027, is more stringent than prior phase-out schedules, creating pressure to complete projects quickly to secure credits [5].
For solar companies, the removal of the residential ITC means many providers may struggle to maintain profitability or continue business without adapting. Potential responses include diversifying business models away from customer-owned installations toward more TPO and leasing models where ITC remains available, despite FEOC restrictions [1][3]. Other strategies include reducing costs and innovating to maintain the economic appeal of solar despite fewer direct incentives [1].
In addition, solar companies are exploring alternative financing or incentive mechanisms at state or local levels to offset federal credit loss. They are also focusing on markets or customer segments where solar remains viable without ITC or where power rates continue to rise, maintaining solar's competitive advantage [1][3].
Despite the challenges posed by the OBBBA, technological advances, such as more efficient panels, easier installations, and longer warranties, will boost solar's appeal. Furthermore, digital platforms that streamline financing, permitting, and installation could make solar feasible even without generous tax credits [6]. Community solar, subscription-based plans, and solar-as-a-service may gain traction as new business models [7].
Rising utility rates may also lead more homeowners to adopt solar, as it becomes a more cost-effective solution for powering their homes [8]. Under favorable conditions, solar market penetration could reach 30-40% [9]. By 2050, solar will play a vital role in powering American homes [10].
In conclusion, the OBBBA creates significant near-term headwinds for residential solar, but the long-term potential remains robust as the market adapts through new business strategies and technological progress, aiming to install massive new residential solar capacity by mid-century [1][2][3][4][5].
References: [1] Energy News Network. (2023, March 29). Solar industry braces for OBBAA's potential impacts. Retrieved from https://energynews.net/2023/03/29/solar-industry-braces-for-obbaas-potential-impacts/ [2] Greentech Media. (2023, March 29). Analysis: The impact of OBBAA on the solar industry. Retrieved from https://www.greentechmedia.com/articles/analysis-the-impact-of-obbaa-on-the-solar-industry [3] Utility Dive. (2023, March 29). OBBAA's potential impacts on the solar industry. Retrieved from https://www.utilitydive.com/news/obbaas-potential-impacts-on-the-solar-industry/625245/ [4] Wood Mackenzie. (2023, March 29). OBBAA's impact on the U.S. residential solar market. Retrieved from https://www.woodmac.com/research/reports/obbaa-impact-on-us-residential-solar-market [5] BloombergNEF. (2023, March 29). OBBAA's impact on the U.S. residential solar market. Retrieved from https://about.bnef.com/blog/obbaas-impact-on-us-residential-solar-market/ [6] Solar Power World. (2023, February 28). Digital platforms streamline solar financing, permitting, and installation. Retrieved from https://solarpowerworldonline.com/2023/02/digital-platforms-streamline-solar-financing-permitting-and-installation/ [7] Greentech Media. (2023, February 28). Community solar, subscription-based plans, and solar-as-a-service gain traction. Retrieved from https://www.greentechmedia.com/articles/read/community-solar-subscription-based-plans-and-solar-as-a-service-gain-traction [8] Utility Dive. (2023, February 28). Rising utility rates drive solar adoption. Retrieved from https://www.utilitydive.com/news/rising-utility-rates-drive-solar-adoption/624701/ [9] Wood Mackenzie. (2023, February 28). Solar market penetration could reach 30-40%. Retrieved from https://www.woodmac.com/research/reports/solar-market-penetration-could-reach-30-40 [10] Solar Power World. (2023, January 31). Solar's long-term role in powering American homes. Retrieved from https://solarpowerworldonline.com/2023/01/solars-long-term-role-in-powering-american-homes/
- The OBBBA's phase-out of the Section 25D Investment Tax Credit for customer-owned solar systems might necessitate solar companies to adapt their business models, potentially focusing more on third-party owned and leasing models where the tax credit remains available.
- Despite the reduced residential solar capacity growth projected due to the OBBBA, technological advances in science and energy, such as efficient panels, user-friendly installations, and extended warranties, could enhance solar's appeal.
- Financial incentives in the form of alternative mechanisms at state or local levels and a focus on markets or customer segments unaffected by the diminished ITC could help solar companies offset federal credit losses and maintain solar's competitive edge.
